A commentary on insurance coverage issues in Hawaii and beyond

June 2019

June 26, 2019

The court approved the insurer's endorsement which stated the insured would not pay for undamaged property in order to match damaged property. Noonan v. Am. Family Mut. Ins. Co., 2019 U.S. App. LEXIS 15545 (May 24, 2019).

After hail and wind damaged part of the roof in the insureds' home, American Family inspected the roof and determined that it had suffered $12,000 in damage. The insureds disputed this amount and demanded an appraisal to provide a binding estimate of the amount of loss. American Family asked the appraisers to divide their estimate into two categories - one for replacing damaged shingles and another for replacing undamaged shingles that would not match those needed to replace the damaged ones. The appraisers did not do so. They instead found that replacing the entire roof would cost $141,000 and noted there was a matching issue because alternative products did not match the current shingles on the roof.

Of the $141,000 needed to replace the entire roof, American Family estimated that $87,232.98 was due to the costs of matching. The insureds sued. The district court remanded the case to the appraisers to clarify the award by differentiating the costs attributable to the actual roof damage from those attributable to shingle matching. The appraisers clarified the award and reported that actual damages were $66,619, meaning that $74,381 was attributable to matching. American Family then paid the actual damages, less the deductible, but refused to pay the rest.

An endorsement stated that American Family would "not pay to repair or replace undamaged property due to mismatch between undamaged material and new materials used to repair or replace damaged material." The district court denied American Family's motion for summary judgment. The court found that the endorsement did not apply to the policy because the endorsement did not say it applied to a prior endorsement which deleted and replaced the portion of the policy titled "Loss Value Determination."

The Eighth Circuit reversed and found that the matching exclusion did apply. The first page of the policy explicitly said that the endorsement applied and a copy of the endorsement was physically attached to the policy.

June 24, 2019

The Hawaii Insurance Commissioner has issued Memorandum 2019 3R, requiring insurers writing residential hurricane coverage at any time in the last 15 years to submit a data call worksheet, or completed survey, to the Insurance Division. The Commissioner explains the information is requested to capture Hawaii-specific information on residential hurricane coverage through a separate data call. The worksheet should be submitted to the Insurance Division by August 30, 2019.

Pursuant to Haw. Rev. Stat. 431:2D-114, any information submitted shall be treated as confidential and privileged, It shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action.

The insured owned a market that needed renovations. The roof over an addition to the market extended from the wall of the extension to the top of the existing roof. The area between the old and new roofs was filled with blown-in insulation, so that the structural support from the new overbuilt roof was not visible. The weight of the overbuilt roof rested on top of the existing roof at the point where they met. This added additional weight on the trusses supporting the main roof.

In 2014, the market upgraded the building with heating and insulation. Thacker was a subcontractor for work on the hearing system. Six gas furnaces, spaced about 35 feet apart along the length of the building, were placed by Thacker. The total weight of each unit was estimated at 280 pounds.

In February 2015, a snowstorm resulted in 14 to 15 inches of heavy, wet snow accumulating on the roof. Employees of the market got on the roof to shovel off the snow. A truss broke and a large portion of the roof collapsed.

The market sought coverage from Affinity. Affinity then sued Thacker, asserting claims for negligence and breach of warranty, arguing that Thacker was at fault for the collapse.

Affinity retained Daniel Honig, a structural engineer, who issued a report that the roof collapsed because of Thacker's placement of the heating units. Thacker moved to strike Honig's opinion.

The court could not discern any logical explanation or methodology in Honig's report for how he reached his opinion that the heating units caused the collapse. Honig noted that the roof should not have collapsed because the building code required roofs to sustain about twice the amount of weight as the snowstorm here would have added. He did not tie that into his opinion that the heating units caused the collapse. He did not opine that the building complied with the code prior to the installation of the heating units, such that fault for the collapse could be attributed to those units. Instead, he opined that "there was significant structural loading capacity deficiencies within this preexisting roof framing system." An admission that the structure was defective even before the heating units were installed would seem to call for an analysis of that structure's capacity and whether it would have been able to withstand the snow even without the addition of the heating units.

The lack of analysis and explanation was fatal to Honig's opinion. The motion to strike was granted.

Mazik was injured in a serious auto accident. He was diagnosed with a "grossly comminuted fracture of the left calcaneus," i.e., heel bone. Mazik's expert at trial described the injury to the heel as "devastating." Surgery was not an option because the bone had burst into to many pieces. The expert testified that Mazik would have a lifetime of chronic pain and issues related to his heel injury.

Mazik received $50,000 from Mercury Insurance Company, the insurer for the driver of the other car involved in the accident. Mazik submitted a claim to Geico, his insurer for underinsured motorist coverage, in the amount of the policy limits $50,000 after the offset from the $50,000 he had already received.

Geico initially offered $1000, then $13,800, then $18,000, then $18,887. An IME requested by Geico found that Mazik's injury did not restrict his occupation as a teacher and that no further medical care was indicated. His prognosis was "good."

An arbitration took place, and the arbitrator issued an award of the full policy limits. Geico finally paid Mazik $50,000.

Mazik filed his bad faith action and the jury returned a verdict in Mazik's favor. Compensatory damages of $313,508 and punitive damages of $4 million were awarded. The trial court reduced the punitive damage award to $1 million.

California law allowed punitive damages against the insurer when an "officer, director, or managing agent" was involved in any act of bad faith and acted with "oppression, fraud, or malice." A regional liability administrator from Geico, Lon Grothen, had initially rejected Mazik's $50,000 claim and offered $1,000. Grothen testified that his job was to establish settlement standards within his region. The court found there was sufficient evidence for the jury to conclude that Grothen engaged in oppressive conduct by ignoring information concerning the extent of Mazik's injuries for the purpose of saving Geico money. He approved unreasonably low offers to Mazik that ignored medical records showing the serious and permanent nature of the injuries. The jury could have reasonably found that Grothen ratified such egregious conduct in approving settlement offers that ignored Mazik's serious injuries.

Sunwestern contracted with the city of Tucson for the construction of a water main collector system. During the project, Sunwestern conducted a pressure-test of the pipeline when several flanges, which connected the pipe sections, came apart. The flange failure caused water to tear out gaskets, seriously damage the pipeline, components of the pipeline, and surrounding areas. Four million dollars in damage was caused.

Sunwestern had a CGL policy with Cincinnati. Coverage was denied by Cincinnati when it determined there was no "occurrence."

There was no dispute that the work was faulty. The relevant inquiry was whether Sunwestern's faulty workmanship resulted in property damage. It was uncontroverted that it did. Improper installation of pipe components led to damage to the pipeline and surrounding areas. The flanges were improperly installed. Sunwestern showed that serious property damage resulted from its defective work and consequential property damage resulting from the faulty work was an occurrence under the policy.

The court then turned to the business risk exclusions. Exclusion j (6) precluded coverage for incorrectly performed work. But the exclusion included an exception for completed operations. Further the exclusion did not exclude coverage for property damage for non-defective property that resulted from faulty workmanship. Thus, while exclusion j (6) unambiguously excluded coverage for damage to the flanges and other incorrectly constructed portions of the pipeline, if they were not "completed," it did not exclude coverage for consequential damage to non-defective property caused by that incorrectly performed work.

Exclusion j (5) barred coverage for property damage to "that particular part of real property on which you or any contractors or subcontractors working . . . on your behalf are performing operations, if the 'property damage' arises out of those operations." Like exclusion j (6), exclusion j (5) only precluded coverage for work that was still in progress. The court found that exclusions j (5) and j (6) unambiguously precluded coverage for the incident and all residual property damage stemming from the incident. However, exclusions j (5) and j (6) only precluded damage to work that was not yet completed, or still in progress.

Exclusion (l), however, applied, excluding property damage to "work or operations performed by" Sunwestern that was included in the products-completed operations hazard. Consequently, exclusion (l) precluded coverage for Sunwestern's completed work.

In all, if the work was completed, it was excluded by exclusion (l). If it was not completed, it was excluded by exclusions j (5) and j (6). The products-completed operations hazard provision was still subject to any relevant exclusions and any faulty work that was encompassed in the products-completed operations hazard provision was unambiguously excluded from coverage by exclusion (l).

There was no ambiguity in the exclusions. Exclusions j (5) and j (6) unambiguously precluded coverage for incorrectly performed work. While exclusions j (5) and j (6) did not preclude coverage for incorrectly performed work that was completed, exclusion (l) unambiguously did. Therefore, Sunwestern was not entitled to coverage and Cincinnati's motion for partial summary judgment was granted.

June 10, 2019

The partial collapse of an exterior brick veneer of an apartment building was found not to be covered under the apartment policy. Keyser v. State Farm Fire & Cas. Co., 2019 U.S. Dist. LEXIS 81194 (W.D. Pa. May 14, 2019).

Norene Keyser was insured by State Farm for a six-unit apartment building. The exterior brick veneer of the property's west-facing wall partially collapsed while a maintenance staff attempted remedial repairs. Keyser filed a claim and State Farm hired Jon Nedley, an engineer, to determine the cause of the loss, and a contractor, Dave Wahl, to estimate the cost to repair the damage.

Wahl provided a preliminary estimate of $115,000 for the cost of repairs for the west wall. Wahl found that the collapse did not damage the north, south, and east facing exterior walls. Nedley concluded that the construction work performed by Keyser's maintenance men caused the west-facing brick veneer to collapse. State Farm concluded that the damage caused by the collapse was covered by the policy. Wahl later updated his repair estimate to $123,446. State Farm calculated the depreciation for the loss and determined that the actual cash value benefits were $40,107. State Farm eventually paid $108,747 in covered benefits and Keyser remained eligible for an additional $87,052 in benefits if repairs were made to the property.

Keyser sued, claiming she was owed coverage for the damage to the north, south and east-facing brick veneer. State Farm argued there was no evidence that the collapse to the west-facing brick veneer caused damage to the north, south, and east-facing veneer. State Farm moved for summary judgment. Even Keyser's expert admitted that he could not casually relate the damage to the north, sough, and east-facing brick veneer to the collapse of the west-facing brick veneer. Without such proof, Keyser could not support that the policy required coverage for any damage to the north, south and east-facing brick veneer.

Keyser also claimed that if only the west facing brick veneer was replaced, it would not match or conform to the other sides of the property. State Farm argued that Keyser had not met her burden that replacement of the west-facing brick veneer would not be with a material of "like kind or quality" as required under the policy. There was no evidence to support Keyser's argument on the feasibility of matching brick. Further, Keyser failed to identify any masons or contractors who could offer testimony on her behalf that the north, south, and east-facing walls needed to be demolished and replaced in order to preserve a matching veneer. Therefore, Keyser had not met her burden that the replacement of the west-facing veneer could not be accomplished with material of "like kind or quality." Thus, Keyser's breach of contract claim that the north, south and east-facing brick veneer needed to be replaced to match the west-facing brick veneer did not present a question for the jury.

Accordingly, State Farm's motion for summary judgment was granted and the claim was dismissed.

J.A. Street & Associates, Inc. entered a contract with the developer, Thundering Herd Development, L.L.C., to build a commercial shopping center on seventy-eight acres of land. Street agreed to oversee the site preparation for the development and the construction of many of the buildings. Thundering Herd retained an engineering firm, S&ME, Inc. to do geotechnical exploration and to provide advice regarding land preparation for the shopping center. Thundering Heard also entered an agreement with the Target Corporation to construct a store on a pad to be prepared at the shopping center.

Street hired subcontractors to prepare the site by grading the land and installing fill material. A slope was constructed at the rear of the proposed Target site, but it failed, causing a landslide, damage to the pad, and damage to adjacent property owned by a third party. Thundering Heard incurred $721,875 in additional costs to repair this slope, reconstruct the Target site, and compensate the neighbor for the damage to the adjacent property.

Another problem arose with the foundation of Shops A when the walls began cracking due to settlement. Remedial action included the installation of pilings under the foundation and grout injection under the slab, as well as repairs of damage to the building.

Thundering Heard filed suit against S&ME. The complaint was later amended to add Street as an additional defendant based upon Street's failure to comply with the construction contracts. resulting in harm to the shopping center due to the landslides.

Street was insured under several CGL, umbrella and excess policies. Bitco General Insurance Corporation provided a defense to Street. Bitco also filed a declaratory judgment action asking the court to rule that it had no duty to defend or indemnify. Street filed a third-party complaint against all of its insurers who issued CGL, umbrella or excess policies during the period of construction.

In ruling on six different summary judgment motions, the circuit court found there was an "occurrence" resulting in "property damage" under the insurers' policies. However, the contractual liability exclusion precluded coverage under each policy.

On appeal, the court found that the installation of fill material, the grading of the land, the construction of the slopes and other site preparation work constituted faulty workmanship and use of materials. Therefore, correction of the site preparation work was not covered under Bitco's CGL policy. But damages for other injury to property that resulted from the alleged faulty workmanship, such as cracked walls or floors in structures caused by the setting of improper fill material, was covered "property damage."

But Bitco's policies excluded "'bodily injury' or 'property damage' for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement." Thundering Herd's underlying complaint sought to have Street to pay damages by reason of Street's alleged assumption of liability in contract claims for the recovery of money. Such a claim was not covered by the policies.

In addition to the exclusion in Bitco's policies, the umbrella and excess policies had similar exclusions for the contractual assumption of liability. Therefore, none of the insurers owed a defense to Bitco and the circuit court's six orders granting summary judgment to the insurers were affirmed.

June 03, 2019

The court held that claims regarding the negligent supervision of an independent contractor who engaged in the sexual abuse of three victimes amounted to one occurrence, requiring a single deductible. Scott Fetzer Co. v. Zurich Am. Ins. Co., 2019 U.S. App. LEXIS 13023 (6th Cir. April 30,2019).

In 2013, three women filed suit against Scott Fetzer Company (dosing business as Kirby Company), Crantz Development LLC, and John Fields. The women alleged that John Fields had sexually assaulted them on numerous occasions between May 2012 and January 2013. Fields was an independent dealer of vacuum cleaners who worked for Crantz, a factory distributor of Kirby vacuums, which were manufactured by Fetzer. The women alleged multiple instances of verbal abuse and harassment, inappropriate touching, force sexual acts, and rape. The women asserted that Fetzer and Crantz Development were negligent in hiring Fields as an independent dealer, allowing Fields to go on sales trips with the women, and failing to have policies and procedures in place to prevent sexual harassment.

Fetzer settled with the three women and then sought reimbursement from Zurich under two general liability policies. Under the policies, Zurich agreed to pay $2 million per "occurrence" of bodily injury, but Fetzer was responsible for paying the first $1 million for each "occurrence." Of the three settlements, only one exceeded the per-occurrence deductible amount. Zurich paid the amount that exceeded the deductible, but it refused to pay anything for the other two settlements. Fetzer contended that the "occurrence" was its negligent hiring and supervision of Fields, which limited the number of occurrences to one, and therefore, Fetzer would have to pay only one deductible. Zurich argued that Fields's actions against each individual woman were all separate occurrences, meaning that there were three occurrences and Fetzer was responsible for paying three separate deductibles.

The district court found that there were three separate occurrences. The Sixth Circuit reversed.

Under Fetzer's interpretation of "occurrence," the "accident" was not that the women were exposed to Fields, but that they were exposed to Fetzer's negligent supervision of Fields. Ohio courts had determined that the relevant "occurrence" could fairly be interpreted as negligent supervision, not the acts perpetrated by the bad actor. The court agreed that the relevant occurrence was Fetzer's negligent supervision of Fields.

If the relevant "occurrence' was negligent supervision, there was only one occurrence. Ohio followed the cause test. The number of occurrences was determined by reference to the cause or causes of the damage or injury, rather than the number of individual claims. Because the occurrence was the negligent supervision of Fields, it was reasonable to read the policy to mean there was only one occurrence.